(Yicai Global) March 7 -- China's new science and technology innovation board should take action to avoid a swarm of companies rushing to list, as this will lead to low quality companies going public and driving money out of the market, according to the vice chairman of the National People's Congress's Financial and Economic Affairs Committee.

The board, set to go live in Shanghai this year to help startups raise cash, should also prevent excessively high issue prices that limit investor interest in the secondary market, Liu Xinhua said during a speech at the Two Sessions -- the simultaneous annual meetings of the NPC, China's national legislature, and its top political advisory body. The sessions began late last week and are expected to last around two weeks.

Setting up the sci-tech board and piloting a registration-based system for initial public offerings will achieve several important breakthroughs in the capital market, he said, but there will be challenges. The biggest will be avoiding disorder once looser regulations come into play for IPOs and trading, as this is China's first attempt at such a system and there are no proven superior methods for it to learn from, added Liu, who was once vice chairman of the China Securities Regulatory Commission.

The companies expecting to list on the board usually become more competitive as they grow, and the sci-tech board should follow this market-oriented path, he added, saying that "the sci-tech innovation board is a place where firms that have succeeded in innovation can flex their might, and is also a demonstrative board for those still beginning the innovation process."

The concept behind the review process focuses on four areas, information disclosure, market exploitation, accountability and protecting investors' rights, Liu said, adding that relevant legislation should be consistent and punishments severe for securities violations to ensure the new board can enter operation smoothly.

He also believes the government should encourage medium-and long-term investors to inject cash into firms on the board and that regulators should allow for fast delisting from the board, as this could become a regular occurrence.